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Yesterday’s losses were all about geo-politics, a scenario in which we would expect a bounce in the event of tensions easing.
That said, today’s rally has surprised me for two reasons. First, how quickly it’s occurred; obviously there was uncertainty over whether the situation would escalate or improve, but even going with the latter scenario I didn’t foresee Putin acting to defuse the situation so immediately. Second, the rally hasn’t just recovered what was lost yesterday, but pushed on to fresh highs.
This is surprisingly positive given the situation has not gone away entirely; the situation in Ukraine remains in flux and who is to say tensions will not flare up again in the near future? The market normally abhors such uncertainty.
As it stands, we are seeing a complete about-face from yesterday’s situation. Share prices are rallying, and liquidity is flowing back out of safe-haven instruments. By early afternoon on Wall Street, the Dow Jones was up 1.38% or 223 points at 16,392, while the S&P 500 gained 1.48% and set a new all-time high of 1873.33.
Part of the market’s further gains may be a deferred response to yesterday’s buoyant manufacturing data. Normally news of acceleration in manufacturing growth, as signalled by February reports from both the ISM and Markit, would provide a lift to the stock market, but this was squeezed out of the picture yesterday by the more imperative military threats in the Ukrainian borderlands. Now the urgency of those headlines have dissipated, investors have been able to digest and respond to those signs of improvement in the manufacturing sector.